Do Not Stay on the “Doi” For So Long
"Stuck on the Mountain" is a popular word for retail investors, especially during the downtrend of stock market. The term "Stuck on the Mountain" is a slang that is used when buying stocks and is confident that the stock price will rise, but in reality, the stock price fell sharply. Instead of selling to cut loss, but deciding to hold that stock because of the hope that the stock price will rise again one day.
The reasons that cause “stuck on the mountain” include:
1. Buying the stocks that are rapidly rising without knowing the cause
For example, over the past several months, stock XYZ is traded at the price of 6 baht, a daily trading amount of a few thousand shares. But at the beginning of last week, the amount of trading increased steadily, causing the stock price to rise rapidly from 6 baht to 7 baht, 8 baht, and the 10 baht.
From the bustling trading atmosphere, it may cause investors to buy stock XYZ because they think that there is an opportunity to make profits in a short period of time.
Suppose to buy stock XYZ at a price of 10 baht, for 5,000 shares (50,000 baht).
However, after that, the price of stock XYZ dropped continuously and quickly and reach the lowest trading price of 3 baht. Then, there is no indication that it will move up. Moreover, each day there is almost no trading at all.
If the investor sells stock XYZ at a price of 3 baht, they will loss 35,000 baht. Therefore, the investor decides to continue holding the stock in the hope that someday the share price will rebound, causing “stuck on the mountain” reluctantly.
2. Buying the stocks according to the trend
Buying this type of stock is usually caused by decisions from unknown sources. For example, there is news that there are a group of foreign institutional investors interested in holding shares in ABC Company, resulting in more cash to invest. As a result, ABC has grown in performance.
When investors heard the news, they decided to buy ABC stocks immediately without checking the information that they were reliable or not. Due to easy access to technology, the news is spread quickly, become a channel for those who want to create false information. If the investors are not careful and believe in that news, they will be damaged.
Such cases usually occur when the news creator wants to sell shares that are held for profit, such as holding ABC stocks at 10 baht. When other investors believe in the information and decide to buy ABC stocks, the price will increase.
When the ABC stock price increased, the news creators started to sell their shares to make a profit, while the news is streaming. Investors who believe the information will continue to buy, such as buying at the price of 13 baht. Investors who hear the information later will buy at a higher price, such as 14 baht, 15 baht, etc.
If investors buy ABC stocks and believe that such information is true, they will be confident that the stock price will rise more than the purchase price. However, when news creator sold all their shares, false information will start to disappear from the market as well. Likewise, the amount of trading will begin to shrink and the stock price will not move. Investors who want to sell the stock are unable to do it because there are no buyers (due to the stock following the trend will be in the hands of one group of investors). As a result, they must continue to hold shares without being reluctant.
3. Buy a good stock, but expensive
Occasionally, the cause of the investor being “stuck on the mountain” is due to good stock, such as when analyzing DEF companies, it is found that they are in a growing business, causing investors to continuously buy DEF stocks and the stock price has continuously risen.
The method of observing that the stock price has risen to a high level can be seen from the P/E ratio that will increase as well. For example, from 10 times to 15 times and the more investors are confident that the DEF business is growing high, the price will be higher as well.
However, assuming that DEF executives announced that the performance is growing slowly and in the future, there is a chance to stop growing, this cause investor to sell stocks and the stock price will fall sharply due to the lower expectations and the P/E ratio also decreased.
If investors cannot sell the stock immediately or are confident that DEF will return to growth next year, they will continue to hold the stock, which looks like being “stuck on the mountain”.
Techniques Get Down from the Mountain
1. Set stop-loss point every time
If one stock price is rising sharply and quickly (Like the XYZ stock), when investors examine the data and find that there are no underlying factors and technical factors to support, the first choice is they should not buy such a stock
But suppose that when already decided to buy stock, investors need to set a stop loss point, in which the easiest way and the quickest way to set a stop loss point is to bring the percentage of stop-loss (or percentage received if loss) and multiplied by the purchase price.
For example, buy an XYZ stock at a price of 10 baht and set the percentage of stop-loss at 5%. As a result, there will be a stop loss of 10 x 5% = 0.50 baht, meaning that the investor accepts 0.5 baht loss. Thus, if the stock price drops to the price of 9.50 baht (10 - 0.50), the stock must be sold immediately. The setting of the stop-loss point is indefinite depending on the level of risk that the investor has accepted and is a willingness to compromise.
2. Set up a profit-making point every time
A good strategy of buying a speculative stock is "to enter fast, be profitable, and hurry back out". This is because this type of stock has high trading amount and high stock price volatility. Therefore, in order to ensure that when buying stock, they can sell the stock and make a profit, the method is to strategically open and close trading in a short period. If the stock price moves up, then sell immediately. This technique is called Scalping.
For example, buying ABC stock at a price of 6 baht, for 3,000 shares (spending 18,000 baht), putting scalping strategies by selling at the price of 6.20 baht. When the price moves up to 6.20 baht, then immediately sell it, which will profit for 600 baht. Even though it seems that there is not much profit, but this is suitable for short-term investments, called play around.
3. Buy a good stock
Warren Buffett has once said that "All investments are always at risk. The higher the return, the higher the risk. Therefore, the risk reduction method is to find the information and to make sure that the investment is not wrong. Do not guess whether to invest in this stock and get profit. Guessing is not considered a risk reduction."
This means that reducing the risk of a good investment is that investors must find support information, regularly study and find information, analyze, and be confident. The selected stock must be a business that has operational results, good profitability with consistent dividend payment and stock options at a price consistent with the stock value.
If the investor chooses to invest in such type of shares, in addition to not being "stuck on the mountain", they can also sell to make a profit from the price difference (capital gain) or invest in the long term to receive dividends too.